Health Check: How Prudently Does Labixiaoxin Snacks Group (HKG:1262) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Labixiaoxin Snacks Group Limited (HKG:1262) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Labixiaoxin Snacks Group Carry?

As you can see below, Labixiaoxin Snacks Group had CN¥461.9m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it also had CN¥47.5m in cash, and so its net debt is CN¥414.5m.

How Strong Is Labixiaoxin Snacks Group's Balance Sheet?

The latest balance sheet data shows that Labixiaoxin Snacks Group had liabilities of CN¥604.2m due within a year, and liabilities of CN¥15.8m falling due after that. Offsetting these obligations, it had cash of CN¥47.5m as well as receivables valued at CN¥162.7m due within 12 months. So it has liabilities totalling CN¥409.9m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of CN¥315.1m, we think shareholders really should watch Labixiaoxin Snacks Group's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Labixiaoxin Snacks Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Labixiaoxin Snacks Group

In the last year Labixiaoxin Snacks Group wasn't profitable at an EBIT level, but managed to grow its revenue by 5.1%, to CN¥889m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Labixiaoxin Snacks Group produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CN¥23m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through CN¥17m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Labixiaoxin Snacks Group (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.